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On Debt Limit, More Treasury Transparency Needed
What is the Treasury planning?


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While the Treasury continues to repeat that its creative-financing options will be exhausted by August 2 and that the $14.3 trillion debt limit must be raised by then to avert a fiscal crisis, this opinion is not unanimous: For instance, Wells Fargo, Barclays, and UBS each recently issued reports suggesting that the Treasury could go days or weeks past that deadline if necessary, and Sen. Orrin Hatch (R., Utah) recently sent a letter to the members of the Financial Stability Oversight Council asking for their measured opinions on the deadline. The growing lack of confidence that August 2 is indeed the last day for negotiations to be safely concluded to prevent a technical default is beginning to confound negotiators.

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If Treasury truly believes that it will have exhausted its options to fund the government subject to the debt ceiling by August 2, it could strengthen the prospects for constructive action by making more financial information available that demonstrates this.

Treasury documents from the 1995-96 debt-limit impasse indicate the kinds of information the Treasury and White House are now using as they negotiate through the final phase of the current debt-limit debate. During that period, the Treasury produced detailed plans — which it never released to the public — to deal with an unchanged debt limit, including a timeline projecting levels of the debt on a daily basis, together with each action Treasury would take to finesse the debt limit as it approached. For example, a Nov. 8, 1995, Treasury memo to Secretary Robert Rubin, which was later obtained by the Congressional Joint Economic Committee, includes a summary “of the measures for consideration and an update of a possible scenario,” with daily debt levels projected through the end of December 1995. Surely a similar memo or briefing paper has been drafted and provided to Secretary Tim Geithner and the White House by now.

This 1995 memo lists a number of possible creative-financing options, without necessarily endorsing them. The memo lists “not reinvest assets of G-Fund” of the government-employee Thrift Savings Plan and certain other funds including trust funds, “disinvest” in the Civil Service Retirement Fund (CSRF) and Exchange Stabilization Fund (ESF), and also “disinvest” in other trust funds “to pay benefits” and “for general purposes.” The funds listed included Social Security, Medicare, Military Retirement, Unemployment, Disability, Highway, and others. Gold sales are also listed, with the notation that they would be “awkward and disruptive.” Some of these ideas have already been used during the current debt-limit impasse, such as the G-Fund, CSRF, ESF, and suspension of the issuance of state and local and state-government-series securities. Some other ideas listed could be problematic.

Given the skepticism in some quarters about the firmness of the August 2 deadline, the Treasury should share background information on its current daily-debt-level projections and financing-options timeline with all interested members of Congress. Disclosing this information to members of Congress could help to avoid miscalculation on all sides and clarify the Treasury’s current and projected financial position. While some of this information could well be market sensitive and would have to be treated as such, as much as possible should be made available to the public as well.

Underlying the debt-limit debate are obvious differences in political philosophy and budget policy. Nonetheless, the prospects for a reasonable outcome in the debt-limit debate would be improved by all policymakers’ having access to the same basic information about the nation’s financial position. While there may be some risk in sharing this information, without such transparency the unknown risks as we approach August 2 would appear to be much more significant.

— Christopher Frenze is a scholar at the American Action Forum.



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